It looks to me as though 2012 is likely to be a truly awful financial year, with several crises converging:

Either very high oil prices or recession,

The US governmental debt limit crisis,

The Euro crisis,

The Chinese debt problem,

Debt deleveraging in the US and elsewhere,

Further MENA (Middle East/North Africa) political problems, and

Conflict between need for greater resources and pollution issues.

It seems to me that we may be reaching “Limits to Growth,” as foretold in the book by the same name in 1972. The book modeled the consequences of a rapidly growing world population and finite resource supplies. A wide range of scenarios was tested, but the result in nearly all scenarios was overshoot and collapse, with the timing of collapse typically being in the 2010 to 2075 time period.

The authors of Limits to Growth did not model the full interactions of the system. One element omitted was how debt would impact the system. Another item omitted was how prices for oil and other resources would affect the system.

If a person follows through the expected effects of high oil prices and debt, the financial system would appear to be the most vulnerable part of the system. The financial system would also appear to be what telegraphs problems from one part of the system to another. Unless a solution is found, failure of the financial system could ultimately bring down the whole system.

Background

Newspapers print endless articles about the need for economic growth, and the need for return to economic growth. But if economic growth really takes resources of some sort–coal, or oil or copper, or fresh water to produce goods and services–it stands to reason that at some point, the resources needed for economic growth will run short. This is especially true for resources that are used up when they are burned, like coal and oil.

Besides the issue of inadequate resources, growing pollution can also interfere with economic growth. As the world is filled with more people, and resources become shorter in supply, pollution becomes more of an issue.

Logically, at some point we can expect to run into limits that are impossible to get around. One of these limits may be inadequate funds for investment in extraction of resources.

In the Limits to Growth model, investment is based on a number of factors, including the efficiency of the system (Figure 2). In some respects the efficiency of the system is growing–better technology. But in others, the “efficiency” is getting worse–declining Energy Return on Energy Invested (EROEI) for fossil fuels, and lower ore grades for mined minerals.

How would we know if investment in extraction of resources is inadequate? It seems to me, it would be through relatively flat production and rising prices (or high prices except when the major countries which are large users of the resource are in recession), and this is precisely what we are seeing for oil.

Figure 3. World oil supply (broadly defined, including biofuels and natural gas liquids) and Brent spot oil price per barrel. All data is from the US Energy Information Administration.

Figure 3 shows that even when all kinds of oil substitutes are included, oil supply has not risen enough to keep oil price flat since the 2003-2004 period.

In my view, what has happened since 2003-2004 is very similar to the effect a person might expect from Liebig’s Law of the Minimum, if oil is a necessary component of the economy, and high oil price signals that too little oil is reaching the system. In agricultural science, Liebig’s Law of the Minimum states that the amount of plant growth is governed not by the total resource available, but by the amount of input of the needed resource in least supply (for example, nitrogen, phosphorous, or potassium). In other words, it isn’t possible to substitute one type of fertilizer for another; similarly, it isn’t possible to substitute one energy product for another in the short term. Instead output contracts, if oil is too high-priced. In a way, this contraction might be seen as a dress rehearsal for the ultimate contraction which Limits to Growth models have suggested will eventually arrive.

I am sure that some would say that oil supply would need to actually decline, for there to be a problem. Since the Limits to Growth model does not look at resource prices, it does not consider this detail. It would seem to me that by the time world oil supply actually declines, the world may already be in a major recession, which does not allow prices to rise high enough to keep production up.

Connection with Debt

What relationship does debt have to the economy?

1. Economic growth enables debt, because in a growing economy, the greater amount of resources available at a later date make it much easier to repay debt with interest. I have shown an illustration of this several times.

Figure 4. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

The above relationship does not mean that debt would disappear completely in a shrinking economy. There would still be some situations where debt would be used, such as in short term loans to facilitate trade, and in situations where high rates of return can be assured.

2. Additional debt enables GDP to grow more rapidly than it otherwise would, because GDP is a gross measure–a measure of what an economy produces and sells–and having more debt helps in two respects:

a. Additional debt helps the company extracting the resource or doing the manufacturing, by giving the company additional funds to work with–to purchase plant and equipment, or to hire consultants. It doesn’t have to wait and only use accumulated profits to fund new ventures.

b. Additional debt helps the potential buyer of goods, because the buyer can pay for the new item purchased (automobile, refrigerator, or house, for example) over a period of years while using the new product.

But higher oil prices tend to be associated with higher food prices. (See Figure 6, below.) When prices of oil and food rise, consumers (except for those making more money because of higher oil and food prices) tend to cut back on discretionary spending. This cut-back in spending leads to lay-offs and recession in discretionary segments of the economy. Some laid-off workers default on their debts, and businesses scale back their plans for expansion, because of the “bad economy”. As a result, they too need less debt.

So debt works well in a growing economy, but once an economy hits high oil prices and recession, debt works much less well. An economy has positive feed back loops from debt in a growing economy, but once oil limits (in terms of high prices) start to hit, feedback loops work in reverse–consumers and producers see less need for debt, and in fact, may default on past loans. Shrinking debt levels make it increasingly difficult for GDP to grow.

Figure 5. US Non-Governmental Debt, Divided by GDP, based on US Federal Reserve and US Bureau of Economic Analysis data.

Figure 5 indicates that for the entire period from 1945 to 2007, non-governmental debt was growing more rapidly than GDP, helping to ramp up GDP. The ratio was close to flat for 2007-2008, indicating non-governmental debt grew about a fast as GDP, and has been declining since. Looking at quarterly data, this decline has continued through the second quarter of 2011. This continued deleveraging makes it more difficult for the economy to grow.

If I am right that we are indeed hitting Limits to Growth, I would expect the deleveraging to continue, and would expect it to get worse, as oil supply gets tighter. The reason why oil supply and not some other resource is involved is because oil is the limit (of the many which we might hit) that we hit first. We don’t have good substitutes for oil, except for products already included in Figure 3 above, such as biofuels and coal-to-liquid and gas-to-liquid. While there is plenty of oil in the ground, most of what is left is expensive-to-extract oil, because we removed the cheap-to-extract oil first.

Our problem now is different from our problem of high oil prices in the 1970s, because then our oil shortage was temporary, and we could add new inexpensive supply (Alaska, North Sea, and Mexico). Now we have few options, except expensive ones, which cause problems for economic growth.

Part of the problem with high oil price seems to be related to the fact that high oil price permits low EROEI oil to be produced. In other words, with high price, it makes economic sense to use a high level of resources to extract the oil. These resources include both resources used indirectly, such as for roads and ports and education, as well as direct expenditures. Clearly, it makes no economic sense to extract oil if the amount of energy required for extraction is greater than the amount produced. With high oil price, it appears likely that we are approaching this limit as well.

Prospects for 2012

We are heading into 2012 with many clouds over our heads. Oil supply is still tight, and prices are still high by historical standards. No country expects huge additional oil supply during 2012. We can pretty well guess that we will either have high oil prices or recession throughout 2012.

Many of the problems arising from high oil prices/recession in the 2008-2009 period still have still not gone away. Instead they have been transferred to the governmental sector. What has happened is that with recession, employment dropped, as did taxes collected by governments. At the same time, government expenditures rose, for bank bailouts, stimulus funds, and payments to the unemployed. This is true both in the United States and in many European countries who are importers of oil.

Now conditions are not much better, and are threatening to get worse, because of continued high oil prices. Governments already have high debt loads, but still need to bail out more banks and pay benefits to more unemployed. The United States is supposed to have a plan to solve its debt limits problem by November 23, and vote on it by December 23. Any cutback in benefits to unemployed or layoff of government workers is likely to make the recession worse; raising taxes is likely to have a similar effect. At the same time, there are still problems which have not really been addressed–for example, large amounts of “underwater” commercial property. Defaults on some of these debts are likely to lead to the need for more bank bailouts.

Problems with the Euro have been in the news a lot recently. The adverse factors (particularly high oil prices) causing the PIIGS to have financial difficulty are still in play, so the financial condition of these countries is not likely to improve; more likely it will get worse. It appears to me that the Euro has a high likelihood of “coming apart” in the next year, either partially or completely, because of debt defaults. If countries go back to their pre-Euro currencies, it is not clear that other countries would want to trade with the defaulting countries, except on very disadvantageous terms.

China has been growing in recent years, but a lot of its growth is propped up by debt. Now, it is hitting headwinds–high oil prices, rising coal prices, and lower economic growth in countries that might buy its products. With less growth, China is likely to have debt default problems relating to the debt supporting its recent growth. All of these headwinds suggest that China’s growth rate may be scaled back greatly as well.

There is no guarantee that we are through the governmental problems in the MENA region. Getting rid of one leader does not guarantee that the new government will be a significant improvement over the previous one, so one revolution may be followed by another, or by civil war. The US is pulling out of Iraq, perhaps leading to greater instability there.

MENA countries generally import a significant share of their food, and high oil prices usually lead to high food prices, because oil is used in the growing and transport of food. Because of these issues, we may see more riots in MENA countries, especially if oil/food prices rise further.

We are reaching limits in areas other than oil, and these may be problems as well. Fresh water is an issue that will become increasingly important. Pollution is another area where limits are being reached. Examples include hydraulic fracturing of wells in populated areas and conflict over EPA regulations relating to coal-fired power plants.

Impact of Omission of Debt and Prices in the Limits to Growth Model

Figure 1 clearly shows a tendency toward overshoot and collapse, based on the Limits to Growth model as it was originally created. The original model doesn’t consider the impact of debt or of resource prices. The omission of debt means that the model doesn’t consider the possibility of moving from an “increasing debt” situation to a “decreasing debt” situation. If such a change takes place about the time resource limits hit, a person would expect sharper peaks and faster declines to the modeled variables.

The omission of resource prices means that the model doesn’t pick up the interconnections between high prices for one resource, and a cut back on demand for other resources. We discovered during the 2008-2009 recession that electricity demand dropped at the same time as oil demand. If financial interconnections cause a shortage of one resource to lead to reduced demand for other resources, this may mean that substitution will not will work as well as some hope.

Nothing happens overnight with the world economy, so changes are likely to take place over a period of years, rather than all at once. We can’t know exactly what the future will bring, but the handwriting on the wall is worrisome.

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About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.

74 Responses to 2012: Reaching “Limits to Growth”?

Energy drives growth. Money is just the information system that responds. Debt is IOUs to a future that will not come. We have more than $1.5Q in debt, bets, and entitlements that cannot and will not be repaid. They are illusions based on the promise of infinite growth. Most of the levels of the pyramid below will simply disappear when the interconnected global debt obligations grind to a halt very soon.

Electricity and oil demand dropped because the economy is contracting. Prices can be gamed and money can be printed, so there will be some dramatic and extreme price fluctuations in the future. Permanent economic contraction in the future due to waning energetic inputs will drive all system behaviors. The dog (the system) gets fed energy and wags its tail (money). Now the dog is being starved, and its tail is wagging hard to beg for food. Taking the dog’s tail and moving it back and forth quickly is not going to improve the dog’s outlook–in fact it may irritate the hungry dog and make it turn around and bite.

At this point, all of the debt creation is a response to diminishing American oil every year since 1970. So we’ve been wagging the dog’s tail (pushing on a string?) increasingly every year since 1970. At this point we have got a bad case of happy tail syndrome or swimmer’s tail. Monetary intervention will become exceedingly painful, resulting in the dog yelping to the act of touching or moving the tail, walking around with its tail tucked and held very still, going in circles to bite its tail, or moving from place to place restlessly, never able to stop, LOL.

Poor dog. In addition to being very hungry, it now has a bad case of swimmer’s tail, meaning that it can’t wag anymore (depression), it runs around in circles biting its tail (positive feedback loops causing increasing separation between haves and have nots), or moves around restlessly from place to place, never able to stop (hyperinflation). If we keep wagging the tail, the muscle damage may become bad enough that blood flow is curtailed (severe depression), and the tail has to be amputated (end of fiat currency). Then there will be a sick, sad dog with a docked tail, who can’t wag anymore. Somebody stop me.

Gail, what you are saying is indeed obvious, yet people don’t catch on because growth is our religion. Telling people that growth will not return is like cursing in a church. People won’t get it because they can’t get it…http://thearchdruidreport.blogspot.com/2011/10/peak-oil-initiation.html is a post by John Michael Greer where he covers that subject. He writes: “When it comes down to it, the most that can be said is that some people get peak oil, and others simply don’t.”.
As for me personal; i have become hesitant to talk about it with people. Instead i’m slowly altering my lifestyle and in the process experiencing that being a ‘prepper’ is a lot of fun !

This is actually a little different from peak oil. Of course, the reason oil investment isn’t enough is because of peak oil–investments would really need to skyrocket to keep oil supply growing. But a person doesn’t have to believe in peak oil to believe in “Limits to Growth”.

People will usually think we’ll work it out and find an alternative to oil, even though this is highly unlikely. Even though the end of growth is a certainty, it’s quite difficult to get the timing right and it’s easy to be “wrong” by 20-30 years (or more). Having said that, it looks like we reached conventional peak oil in 2005, so it does not look good at all right now.

Jan, Most of the people I know don’t “catch on” because they just don’t think at all. They are totally embedded in the current system and, seemingly, have no ability to imagine a system other than the one in which they find themselves. It’s truly mind boggling. I find that when I talk about any of these topics, they either get a spaced out look on their faces, or they get one that’s concerned and puzzled as if I just might be a crazy person who should be avoided. (The jury may still be out on that one, I’m afraid).

Similar to the people you mention, the exceptions are those who feed at the teat of the industrial economy propaganda machine and have an almost religious fervor about their belief that anything contrary to a pro-business, pro-growth mindset is evil: global warming, peak oil, etc. Non coincidentally, I find that many of these type of people don’t even realize that there are channels other than Fox News and CNBC.

I am worried about the state and quality of natural resource, all of them: mineral, soil, water quality and flow, forest and of course oil. In here in Quebec, Canada, the government want to develop mining in the nord of the province. One of two company are starting to build mining operation. There is no road that go that far north, no infrastructures, it looks like we are desperate for resource.

It seems the we are witnessing a total resource depletion that caused the financial crises. I am all the worried that I can see that with my own eyes (see example above). Even the river surrounding the north part of Laval is usually low. Now we are cutting tree of 4 inche of diameter and logging take place up north where trees are smaller and far from big city. Before there used to be 4 feet diameter trees around Saint-Laurent river. I don’t like what I see at all and I find really difficult to prepare for the collapse without the manufacturing base in place.

I am worried about the natural ressource depletion more that anything else.

I agree that we are going after lower and lower quality resources now. Shale gas has been likened in quality to getting gas from the concrete in your driveway. We have to go to distant areas, or use dangerous procedures in populated areas, to get enough. You gave some good examples.

I think the resource shrinkage that has shocked me most is the drop in the size of fish we are getting from the ocean. This is a presentation by Jeremy Jackson about the problem. I believe there is a picture of how prize fish sizes off of Florida have been shrinking. I think part of the problem is that we have been told that it is good for people to eat fish because of the Omega 3 fatty acids, but there aren’t really enough fish for everyone on earth.

I just discovered your site through the Financial Sense (Jim Puplava) site. I have found your site to be of the highest quality, and have bookmarked it for continued future reading.

Another site of similar quality it the site http://theautomaticearth.blogspot.com/.
I would very much like to hear a dialogue between you and “Stoneleigh” of that site concerning the probability of a deflationary depression and its relationship to the advantageous timing of precious metal accumulation.

Stop by the ASPO-USA Conference in Washington DC on November 3-4. Stoneleigh (Nicole Foss) and I will be on a panel together with Dmitry Orlov (who writes about lessons from the crash of the former Soviet Union) talking about some of these issues.

I am not really one to forecast when to buy and sell precious metals, though. As long as things “hold together,” it seems like appreciation of precious metals has a chance of working.

I think just as much as issue is holding the real thing (gold or silver), if things completely fall apart, for the purpose of barter. I think silver is somewhat better in this regard than gold, because the value of individual coins is closer to the value of things you are likely to want to buy. There is also less issue of needing to verify that it is the “real thing”, if the coins you have are familiar ones, and not as prone to counterfeiting.

Gold is a little more iffy as a metal to hold for everyday trading for reasons I explained in this post. Gold may be helpful in a few situations, but generally, tools or things you can use to help create food, clothing or other things people will need would be more helpful.

Hi Gail:
I offered your reader this idea before. Rather than gold and silver as a medium of exchange when fiat currency loses it value, I believe stainless steel fasteners (screws, nuts and bolts) are the best option. They are useful to farmers and fisherman, are very pocket-portable, are similar in value to the day-to-day things that you need to survive and are not easily stolen when deployed to hold personal things together. They also have greater scarcity value than gold and silver since they are manufactured from special metals and just extracted from the earth.

I bought some panels with expanded metal on a government auction website. “Does a magnet stick to them?” I asked when they couldn’t tell me what material they were. “No.” So I figured aluminum, and bid accordingly. Got 3,600 square feet of expanded metal for about $600.

Imagine my surprise when I tried to cut it, and it simply laughed at my carbide circular saw blade. It was stainless steel! I looked up the new price, and it’s worth over $18,000 new.

The limits to growth thesis is unassailable. Your subsiduary theses on financial issues should perhaps be subject to a few caveats. You say “the financial system would appear to be the most vulnerable part of the system”. I would agree with this thesis only if a caveat is added to make it read thus:

“The financial system would appear to be the most vulnerable part of the system WHILE neoclassical economic policies remain in force.”

You mention that “Governments have high debt loads.” This fact is only a negative issue if;

(a) it is a government like Greece (tied to the Euro) without the power to issue its own fiat currency; or
(b) it is a fiat currency issuing government constrained by absurd neoliberal, neoclassical politics.

A persistent myth of neoclassical economics is that the government budget is just like a household budget. This is fallacious. A fiat currency issuing government like that of the US can (and does at times) print money by budget deficits or inject new money into the economy by QE (Quantitative Easing). A government which issues fiat currency can do so via a deficit budget without incurring any debt. It may issue bonds at times but bond issues are more about interest rates policy. In both cases (deficit spending and QE), the new money is now not printed on paper but merely “created”and issued electronically. Bank accounts are credited with new “fiat” dollars.

There is no limit on this process in the framework of national accounting. Of course, there are real limits on this process as this policy carried to absurd lengths would indeed create hyperinflation. These real limits (which would create hyperinflation) are much further away, currently, than is credited by neoclassical economics. With US unemployment at over 9%, the US economy needs further stimulation by deficit spending. This would increase demand in the economy, soak up unemployment and create real new supply in the (currently underutilised) economy.

You say “one of these limits may be inadequate funds for investment in extraction of resources”. Funds will only be inadequate while the economy is run on neoliberal, neoclassical lines with austerity measures strangling the economy and limiting the availability of capital. In the final analysis, limits in a notional system (the money system) are only caused by the limits of politics, ideology and constricted imagination. However, at the risk of a tautology, real limits ARE real. Inadequate energy to invest in further energy searches or inadequate energy return on energy invested will be the real problems as you are fully aware.

What is really needed to meet the challenges of the future, is a return to a dirigisme approach. Corporate financial capitalism under neoclassical free market presecriptions will fail utterly to deal with the coming crisis. A national emergency effort (akin to an all out war effort) with national planning and a full mobilisation of all human, technical and physical assets will be needed. Even then, as you correctly point out, a crisis and some considerable degree of collapse cannot be avoided. Perhaps however, such an effort could make the difference between a total, uncontrolled collapse and a partial, controlled collapse.

If we don’t hope and plan for a a partial, controlled collapse then we might as well give in to total despair right now. Humanity must stage a strategic withdrawal from the untenable heights where we are now (overshoot) back down to a lower maintainable base. Capitalism, in its current neoliberal, corporate form, will not be part of a sustainable future if there is a sustainable future.

Just to put my thinking in perspective, I see this sustainable future realistically as comprising a gobal population of about 2 billion humans. (That is if we have not done too much irreparable damage in our overshoot.)

I see the private problem as at least a big a problem as the governmental debt problem. This problem is a huge problem, which hasn’t been resolved. It seems to me there will be nothing but defaults in the non-governmental sector, as more people lose their jobs, and as it becomes clear commercial property is not worth the amount of loans outstanding. We would have to change to a very different system than we have to fix those problems. If each person now has 600 energy slaves to help him in producing goods and services, it becomes progressively harder to pay back the debt with interest as the number of energy slaves drops, eventually to zero. I don’t see the economic system being the real problem–it is the underlying reality that is the problem.

I have not written much about the governmental debt problem, because much of its promises are “off balance sheet,” and thus hard to count. Governments make huge promises for Social Security, Medicare, Unemployment insurance, insurance of bank deposits, and insurance of pension plans. The intent behind all of these programs was that there would be real goods that could be purchased with the money that these programs could pay out. With rising production of goods and services, these programs made sense, but they make much less sense as the amount of goods and services declines. “Printing money” doesn’t fix the underlying problem–it just attempts to “paper it over”.

Reinhart and Rogoff found that governmental entities in the past 800 years who did not default on their debt (including by inflating it away by printing money) were “huge growth stories”. Once this option is gone, debt has to be defaulted on, either (1) by printing more money to deflate it, or (2) by outright default. Not having the option of printing more money does move the method of default to outright default. But in my view, it doesn’t change the basic problem. Default is default, whether by printing money to reduce what the currency will buy, or by refusing to pay the debt.

We are both in “furious agreement” that the real underlying problem now is the set of real limits to growth. Private debt is also a major issue as you point out. Even without limits to growth, current private debt had grown to unsustainable levels. Growth limits make this problem worse as you also point out. This debt must be defaulted as there is no hope of it ever being paid off. The defaulting of this debt threatens to throw the economy into a Financial Depression even before limits to growth throw us into what might be called a Limits Depression.

Massive default of private debt withdraws aggregate demand from the economy in a big way. It is this lack of aggregate demand which plunges the economy into depression. A wise government can pick up the slack by running large deficit budgets in this situation and reflating the economy. This is straightforward Keynesian counter-cyclical spending. Modern Monetary Theory (MMT) also advocates this path.

However, given that we have entered the period where natural limits to growth will now impact on our society and economy, a government like that of the US or Australia must
reflate the economy in a particular manner. The key words are “in a particular manner”. Government must take a lead strategic planning role (a dirigisme approach) and reflate the economy by channeling reflationary spending into green projects, sustainable energy, energy saving projects, mass transit, social projects, population growth limiting projects etc. etc. etc.

This lead role is similar to the lead role that governments, even democratic governments in a capitalist system, take in major crises like wars. During such major crises (like world wars) nobody ever seriously suggests that fate of the nation be left to what the free market decides. This oncoming global crisis will be a battle to save civilization itself. Corporate “free market” capitalism cannot be left to its own misguided workings. Capitalism itself must continue to exist for the time being but it must be heavily directed by a dirigist government approach to apply itself to the problems of limits to growth. On its own, the planning horizon of capitalism is too short, the profit motive too myopic and negative externalities are not priced unless enforced by government regulation.

Perhaps such dirigist action will be too late but let us not allow it to be too little. We must take action to ameliorate those aspects of the collapse which we can ameliorate. I liken the situation to an aircraft which must crash in rough terrain because it has run out of fuel. You can have a catastrophic crash or you can attempt a controlled crash landing by piloting towards the least rough terrain and hoping that you can save at least a proportion of the passengers. A good pilot in such a situation works to do his best right up to the last second before impact. We ought to attempt to be good pilots by democratically demanding the best dirigist government approach leading into and through the crisis.

As I see it, about all a government can do is allocate the resources available to it, in the way it considers best. If there are fewer resources in total, it makes the job much harder.

MMT was developed in an entirely different situation. I have a hard time believing that it can be stretched to the point where it can fix a myriad of problems. At some point, people stop accepting the printed money, and the system breaks down.

Government must take a lead strategic planning role (a dirigisme approach) and reflate the economy by channeling reflationary spending into green projects, sustainable energy, energy saving projects, mass transit, social projects, population growth limiting projects etc. etc. etc.

I very much agree with your basic premise.

Perhaps however, such an effort could make the difference between a total, uncontrolled collapse and a partial, controlled collapse…..
I see this sustainable future realistically as comprising a global population of about 2 billion humans.

And, I also agree with your caveats.

The amazing thing is how few other people agree. Your “Government must” is the tricky part. You have put forth a “solution”. My experience is that specific solutions are seldom successfully implemented unless there is a very deep appreciation of the problem and a clear vision for goals that the solutions are designed to achieve. I don’t see any wide recognition of the problem. And, even on this forum, very much enthusiasm for setting goals for things like humane population reduction, consumption curtailment, sustainable energy, etc.

It seems to me that the general public (especially in the US) is unable to deal with the possibility of a radical downgrade of BAU; and knowledgeable folks (like on this forum) are mostly cynical about plans like those you espouse. In general, we have denial on one hand and futility on the other.

i think there’s one important thing about government debt that you didn’t mention. namely government debt is not really debt but money that is created so that economic activity is possible. of course when the economy shrinks we need less money, in other words less debt. but i think the important point is that now government pays interest to private banks for these “loans”, i.e. private banks create money and the countries pay interest for this. in the shrinking economy it would be helpful that the government creates itself debt free money so there is no interest to be paid.

of course this doesn’t solve the basic limits of growth problem, but i think it would anyway be quite helpful.

If you see the “inevitability” of Gail’s writing, then I urge you to prepare for a world with intermittent services. What will you do if there is no food on the grocery shelves? What will you do if the pharmacy is closed? What will you do if the power is off? Our grandparents and great-grandparents had well-practiced “heritage” skills for exactly these environments. Today we do not. You do not want to wait until you need these skills to acquire them.

Right. It is hard to know where to start. Even now, when you visit foreign countries, it is not too unusual to find a candle in a drawer, for a power outage.

I think the most critical issue is water. I understand it is possible to get some water from the upper tank on toilets, and from the tanks of hot water heaters. Years ago homes had water catchment devices associated with their roofs, plus cisterns for water storage. To have a chance of using the water for drinking, you need a clay tile or metal roof–not asphalt tiles.

Food is the another critical item. Having a way to cook food without electricity is another issue.

Most people throughout the ages have not been able to depend on refrigeration. If electricity is intermittent (our out for weeks at a time), we are going to have to figure out a Plan B.

You could make the case that the advanced economies reached the “limits of growth” when fertility rates fell below those required to maintain population levels. Thus, for many countries, including Russia and eastern Europe, Germany, Italy, Japan and many others, the limits to growth–in terms of supportable population–were passed some time ago. But these “limits” may not be determined by food or oil supply, but rather by the cost of education and the overall burden of raising children. The “limits” may be, in a sense, encountered in the realm of “luxury”–an education for one’s children–rather than in living hand-to-mouth in a more literally Malthusian sense. This is not all necessarily bad. For example, Hungary’s population is below what it was in say, 1970, but everyone still gets by, even if the population is older on average.

Further, oil shocks have never–never–led to a cessation of growth. Rather, consumption and GDP fell to a lower level, from which it again began to grow. Keep in mind that we could get by without oil entirely. We’d have to migrate to electric vehicles, which would undoubtedly be expensive and painful. But once acccomplished, GDP would begin to grow again. How bad would it be? Well, onshore wind is good at about $8 / mmbtu gas–about twice current levels. And eletric cars are economical at twice gasoline-powered ones. So we have a pretty good feel for the economics of transition. Certainly, the loss of welfare to a new, lower level of income is not welcome, but neither was World War II. Whatever the economic situation today, it remains far from the many horrors of the 20th century.

Finally, growth has not stopped! Indeed, it is very high. World GDP growth has been extraordinarily widespread and rapid in the last ten years. According to the IMF, World GDP in 2011 was nearly 50% higher than ten years earlier. Even at market prices, it was 30% higher. Tha’ts remarkable. Truly. The difference is that the growth is not here in the US or Europe, but rather in the emerging markets, China chief among them. But for them, life is much, much better than it was thirty years ago. I don’t think we felt as much pity for their much worse plight at the time than we do for our more modest struggles today.

Population will peak at some point. I doubt we will every see 15 billion head worldwide. But that does not preclude growth. As long as property rights remain intact, and the individual can accumulate wealth, individuals will. They will continue to get better at producing things, they will continue to innovate, they will continue to become more efficient in their activities. Notwithstanding our own difficulties, never before in the history of mankind have so many had it so good. Not by a long shot.

There are many ways of looking at things, and it is possible yours may be right. I think China’s growth has been greatly pumped up by debt. It is using coal for most of its energy needs, and is already reaching the point at which it is hard to ramp up coal use fast enough. It may take a few years, but I am guessing that China’s growth rate will come down in not too many years.

Yes life in the west is mean and brutish. You must spent $500,000 to educate your child to the point where they can just survive. If you try to conform to the lifestyle of the west. I think the Mexicans will do much better in the U.S. than the native European stock. They are willing to live in large multi-generation families in close quarters. They are willing to wear Salvation Army clothes, etc.

http://www.lib.niu.edu/2001/iht810102.html
To till an acre of land with a John Deere 1850’s vintage steel blade pulled by horses or oxen required 5-8 hrs (300-480 mins). In 1998, a 450 horsepower John Deere tractor pulling a 15 bottom plow tilled an acre in 3.2 minutes. Oil is a 100:1 ratio.

AT 740 watts per horsepower, that’s 333 Kilowatts. The state of the art in electric tractors today?
20 horsepower.
WE could get by without oil. You and me. We could plow enough acreage to feed . . . you and me. You won’t get it plowed before growing season is over if you try to feed 7 billion with 20 horsepower tractors.

Owen, absolutely right. Prior to the modern era, enabled by oil and coal, the human population never got above half a billion as far as we can tell. To think that somehow we will be able to do better in a resource-depleted future seems quite unlikely.

Without government palnning and action, everyone in the US will end up like the characters in the movie Winter’s Bone; living in old huts, shooting squirrels and burning wood to keep warm. Only thing is, 300 million people cannot live that way. On the other hand, I wouldn’t mind betting that at least 300 million Chinese live lives as poor as this but probably on rice and rats and a little duck and pig. So maybe it is do-able. Won’t be any fun though.

Here are the top GDP growth years from 1980, from the IMF September WEO, with IMF forecasts to 2016 included (acknowledging that forecasts are inherently speculative). Column on the right is the world GDP growth rate at constant prices. Note that all but one of the top ten are from the post-2000 period, and three top ten years are forecast in the next five:

Societies in decline (among others) can be brutal. In the dystopia being envisioned in these comments, little is being made about dealing with robbery of various blue-collar sorts (the white collars fray more quickly). And then there is just plain viciousness and thuggishness, often with xenophobia as excuse and cover. As former Prime Minister Margaret Thatcher commented after the Bristol bombing (by the IRA), “Civilization is a thin veneer over barbarism.”

For instance, look at the hispanophobia sweeping the country recently.

Relatives living in the Occupied Territories once had water tanks abouve their houses, as water deliveries to settlements has priority. Army patrols would sometimes take potshots at these water tanks, more for the fun of it than for official intimidation, but if one patrol in a hundred patrol shoots holes in your water tank, it is essentially worthless. (They have long since moved the water tank indoors, and have manual pumps and for when the electricity is out.)

Hispanophobes are still a relatively small minority in the US. Most Israelis are Jews, and Jews have by and large a most admirable record concerning human dignity. However, it takes but a few troublemakers of any kind to make trouble, bigtime.

Recommendation: Stick to your own kind. Do all you can to prevent your offspring from getting into miscegenetic families (like mine).

All of these changes are worrisome. My own neighborhood is pretty mixed–university students, people of various nationalities who work for the university, and others. Some families are Hispanic; other are Pakistani; most are “white”. There are a few black people. There are relatively few people with children. My own adult children aren’t married.

This is a time in the history of the world when we are invited to step back, slow down, and ask some very basic questions. As an example, compare the James Howard Kunstler blog today with all the financial stuff you can read at Zero Hedge. Kunstler is remarking about the good health and good manners of the Europeans he comes in contact with, while Zero Hedge obsesses about the future of the Euro, the survival of the banks, and whether the Italian government will collapse. What Kunstler is talking about is far more real world than anything Zero Hedge is talking about. This is not to denigrate anything that either of these provocative bloggers are saying. It is merely to observe that, in a time of financial uncertainty, we are invited to look at what finance is all about and whether there might be other ways to accomplish our goals.

So what are our goals? I submit that there are two fundamental goals. The first is good health and good relationships with our fellow humans and all of the creatures of the Earth. The second is the stimulation of our ‘feel good’ hormones–which I will simplify into just dopamine. The acquisition of a shiny new car can release dopamine, but so can experiences which cost nothing at all.

If we look at GDP, it measures the costs we incur as we attempt to accomplish some mix of those two objectives. Any objective observer would say that Americans fail to accomplish the first objective despite spending vast sums on ‘health care’–and those vast sums account for much of the increase in our GDP. Thus, counting costs instead of outcomes is revealed to hide more information than it reveals any path for action. For some current statistics on how Americans are trying to feel better by shopping more, see http://www.zerohedge.com/news/more-depressed-and-broke-us-consumers-are-more-worthless-trinkets-they-buy

If we look at the second category, we can distinguish the acquisition of economic goods or power, from very low cost pleasures such as a walk in the woods near our house or playing with our children using homemade toys. The first group can be ruinously expensive, and the dopamine release soon wear off, and we have to go out and buy some more stuff or get new demonstrations of our power by running over some harmless bystander. The second group is NEVER advertised on TV or the Internet or in magazines or newspapers. The second group is seldom the subject of conversation while having a beer with the guys.

Yet reality in the form of the demands for debt repayment, inability to extend credit, the inexorable increase in the cost of gasoline, and the constant threat of unemployment DO affect behavior: “spending on appliances, jewellery, watches, air travel, recreation vehicles, cameras, gambling is actually lower today than in 2005″, on credit unions whose customers don’t want to borrow money, ” “Too few of its 95,000 members, most of whom live or work in five counties in the San Francisco Bay Area, want to borrow money. And too many are making extra payments on mortgages and car loans — or paying off personal loans … Provident’s loan portfolio has shrunk by 25% since the end of 2008, including a 5% drop in the first nine months of this year” http://www.zerohedge.com/news/random-thoughts-david-rosenberg

We also know that signs of stress are up: depression, more use of alcohol and drugs, marital strife, etc.

In short, it seems that people ARE cutting back, but they are paying a price in terms of reduced dopamine and increased stress hormones. Now here is the point. If we frame the question as ‘how can we restart the debt and physical growth spiral such that most people get plenty of dopamine?’, we cannot find a solution because of Peak Everything and Liebig’s Law of the Minimum. If we stop to ask ourselves ‘how can we facilitate everyone in the US getting what they need for good health in a sustainable relationship with the environment?’, then there MAY be a solution provided we can learn to manage our own hormones. After all, many people have been happy who had no command over the energy and other resources we take for granted.

I submit that the peculiar and meaningless statistic GDP stops us from thinking clearly about what it is we really want to do. There is no guarantee that clear thinking can get us through the difficulties, but with the current muddled thinking, there is no hope of getting through the difficulties.

“Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.”

the more one thinks about money the less meaningful it is. If I survive to a “normal” old age (another 20yrs) prior to my exit the neoliberal economic/monetary systems will collapse, it cannot run backwards. Interest means growth. The physical “economy” (real things) is constrained by the actual physical limits on resources (specifically energy) and to my way of thinking has not been able to grow for at least a decade possibly 2, this explains the concerted effort to rescind glass steagall thus allowing the creation of the myriad crossbred “structured investment vehicles” (bets) to enable growth in the economy. Physical growth died years ago, now even the air based monetary system is being dragged down by the real world.

S’funny the only banks that dont charge interest are the islamic ones hohohohohoho

Much more intellectual honesty, moral courage and humane action is needed. We are about to become a species of 7 billion overconsumers, overproducers and overpopulaters on a finite and frangible planet where its resources are dissipating and environs degrading rapidly.

During my lifetime, when human numbers explode from less than 3 bn to 7+ bn worldwide, many experts may not have known enough about what they were talking about when they spoke of human population dynamics and all causes of the human overpopulation of Earth. Their research appears not to be scientific, but rather issues from ideological or totalitarian thinking, or from specious group-think consensus. Their all-too-attractive thinking, as viewed by greedmongers, is willfully derived from what is politically convenient, economically expedient, socially agreeable, religiously tolerable and culturally prescribed. Widely broadcast and long-accepted thinking of a surprisingly large number of so-called experts in the field of population dynamics appears to have an unscientific foundation and is likely wrong. Their preternatural theorizing about the population dynamics of the human species appears to be both incomplete and misleading. Most disturbing of all, a widely shared and consensually validated theory about a “demographic transition” four decades from now is directly contradicted by unchallenged scientific research. As a consequence, and it is a pernicious consequence, a woefully inadequate thinking and fundamentally flawed theory was broadcast during my lifetime and continues to be broadcast everywhere by the mainstream media as if it is not only science but the best available scientific evidence. The implications of this unfortunate behavior, inasmuch as it appears to be based upon a colossal misperception of what could somehow be real regarding the human population, appear profound. This failure of nerve has slowed the momentum needed to confront a formidable, human-driven global predicament.

In their elective mutism regarding an astonishing error, are first class professional researchers with expertise in population dynamics behaving badly by allowing the “ninety-nine percenters” to be misguided and led down a primrose path by the “one percenters”? The power of silence on the part of knowledgeable human beings with feet of clay is dangerous because research is being denied that appears to shed light upon a dark, non-recursive biological problem, the understanding of which appears vital to future human well being and environmental health. Too many experts appear to be ignoring science regarding the human population and instead consciously through their silence consenting to the leviathan scale and unbridled expansion of global overproduction, overconsumption and overpopulation activities that are being adamantly advocated and relentlessly pursued by greedmongering masters of the universe, the tiny minority among us who are primarily responsible for ravaging the Earth, ruining its environs and reducing its fitness for habitation by the children. If this assessment of human behavior is indeed a fair representation of what is happening on our watch, then the desire to preserve the status quo, mainly the selfish interests of ‘the powers that be’, could be at least one basis for so much intellectually dishonest and morally bereft behavior. Could it be that the outrageous per capita overconsumption, large-scale corporate overproduction and unrestricted overpopulation activities of the human species worldwide cannot continue much longer on a planet with the size, composition and ecology of a finite and frangible planet like Earth?

For human beings to count human population numbers is simple, really simple. The population dynamics of human beings with feet of clay are obvious and fully comprehensible. We have allowed ourselves to be dazzled by the BS of too many demographers just the way human beings have been deceived and victimized by a multitude of economists on Wall Street. Demographers and economists are not scientists. ‘The brightest and the best’ have sold their souls to greedmongers, duped the rest of us, made it difficult to see what is real, proclaimed what is known to be knowable as unknowable, engaged in the their own brands of alchemy. In their dishonest and duplicitous efforts to please the self-proclaimed masters of the universe, also known as the keepers of the ‘golden calf’ (a symbol now easily visible as the “raging bull” on Wall Street), they perpetrate frauds at everyone else’s expense, threaten the children’s future, put life as we know it at risk, and are consciously, deliberately, actively precipitating the destruction of Earth as a fit place for human habitation. Never in the course of human events have so few taken so much from so many and left so little for others.

There are many too many overly educated “wise guys” among us who see the blessed world we inhabit through the lens of their own hubris and selfishness, and see themselves somehow as Homo sapiens sapiens and masters of the universe, as corporate kings and emperor’s with clothes. They supposedly are the brightest and best, the smartest guys in the room, like the guy who used to run the global political economy without recognizing that there was an “ideological flaw” in his economic theories and models, the same guy who reported he could not name 5 guys smarter than himself. These are guys who have denied science, abjectly failed humanity, forsaken life as we know it, the Earth and God. These ideologues rule the world now and can best be characterized by their malignant narcissism, pathological arrogance, extreme foolishness, addiction to risk-taking and wanton greed.

Basically, the demographers are saying the population problem will solve itself, and that we will have enough resources. This really isn’t true. Back in the 1960s, there was a real push to encourage people to have smaller families. But this has completely gone away. The anti-abortion emphasis also means that many unwanted babies will be born around the world.

The Limits to Growth tackles its subject on a global basis. The population, the resources used, and the pollution generated are all global.

For an approach at the level of the individual, family, and tribe, see Notes on the Synthesis of Form by Christopher Alexander. The book was published in 1964 when Alexander was at Berkeley, CA. The last time I heard, he is still alive and living mostly in England. Alexander’s concern is the built environment, although calling him an architect is somewhat misleading, as you will see. Another book well worth your time is The Timeless Way of Building, where Alexander recommends that everyone build their own house in small increments as they get experience with what they have already built and are using daily and as their requirements change. Both books are currently in paperback.

I will vastly oversimplify his arguments, so that you may get some idea whether it is worthwhile for you to go to the source.

‘The form is a part of the world over which we have control, and which we decide to shape while leaving the rest of the world as it is. The context is that part of the world which puts demands on this form, anything in the world that makes demands of the form is context.’

‘Unfortunately, we cannot give an adequate description of the context we are dealing with….We should alweays expect to see the process of achieving good fit between two entitities as a negative process of neutralizing the incongruities, or irritants, or forces, which cause misfit….The task of design is not to create form which meets certain conditions, but to create such an order in the ensemble that (all the irritants are removed).’

He tackles the subject of the coherence and relevance we see in traditional houses built by their occupants from very simple materials (native huts, teepees, igloos, etc.) with the sterile and ill-fitting houses produced by modern architects. ‘All the agent need do is to recognize failures when they occur, and to react to them. And this even the simplest man can do. For although only few men have sufficient integrative ability to invent form of any clarity, we are all able to criticize existing forms. It is especially important to understand that the agent in such a process needs no creative strength. He does not need to be able to improve the form, only to make some sort of change when he notices a failure.’

Then he shows that stable forms require several conditions. One is that the individual agent be capable of recognizing and fixing the irritant or misfit. Another is a strong ‘conservative streak’ about ‘the way we do things around here’. The first condition insures change, but the second imposes a negative feedback loop which keeps the form relevant to the hard-won knowledge of generations. The third is that the forms contain subsystems which are independent, although interconnected (e.g., we may think about water management as a relatively independent system, but also recognize that it is connected to the roof.) If everything is connected to everything else, then the age of the universe is not long enough for the forms to evolve to stability. The evolving requirements of the owner plus the changing context plus the lack of independent subsystems spell continual instability.

I would draw some corollaries from his observations. The first has to do with simple building materials and Alexander’s recommendation in The Timeless Way of Building that everyone build their own house. It seems to me that the ‘Dancing Rabbit’ approach to home construction is on the right track. Build simple structures that you thoroughly understand and modify them as you find irritants or as your needs change. The second corollary is that if one is dependent on industrial processes, then everything is connected to everything else and the system will likely never reach equilibrium. The owner will be stuck with a house which he cannot understand or modify easily, which will cost a great deal of money, which will probably result in enormous debt, which makes the owner subject to all the vagaries of finance and financial collapse, and which will never actually fit.

There is a local guy who runs a plant nursery who is extremely well respected. He takes interns who want to learn his tricks of the trade. BUT, he requires that they build the house they intend to occupy while working for him, spending no more than a thousand dollars. I don’t know if he has read Alexander, but his thinking is similar.

If you think about the large but dimly perceived changes in the context as we enter the age of Peak Everything, plus the dimly understood changes in our needs over that period of time, then analogies drawn from Christopher’s books may be helpful.

I think we need to be changing along the lines you outline. It is hard to even imagine what our needs will be 20 or more years from now. The temptation is to spend thousands on a roof-top solar PV system, only to find that the electrical company goes out of business in a few years, and we are unable to physically more the panels to a new location with a self-built farm. Perhaps one or two panels can be carried along to the new location, and used to power a hand-dug well, if somehow we can find parts for the well, and get everything to work together.

I think we will need to go back to the simple homes that people through the ages have used. I remember visiting Wyoming, and seeing a small home built of sod. By today’s standards it would have be extremely rustic. We may pretty much do without furniture, like people in Japan and India do, if furniture is hard to move and takes up precious space.

In the ancient past, populations tended to live where it is reasonably warm, simply because of the limited availability of energy required to heat a home. As we become more energy constrained, we will likely need to make homes small again, and, in much of the world, do without heating altogether. The fancy Passiv Hauses are nice, but without electricity, and transportation to places of work, and replacement windows, they may prove to be useless.

Gail, once again I find your writing to be thorough, insightful, and dead-on. Thanks for the essay.

Dr. Albert Bartlett, Professor Emeritus, Dept. of Physics at UC Boulder, put together a video series which covers some of the similar topics but presented from a slightly different perspective. It can be found here: http://www.youtube.com/watch?v=F-QA2rkpBSY

As you’ve stated, ultimately, what every person with even an elementary understanding of science or math can tell you, infinite growth is impossible when there are limited resources of any kind.

Interesting point of view. I wonder if you have any evidence to back up that sentiment? Just one of thousands of examples: we are rapidly running out of phosphorus. (http://www.theoildrum.com/node/2882) Phosphorus is a requirement of modern agriculture. The so-called Green Revolution would quickly die away without it. I would find it very interesting if you could explain how this is a limit induced by government.

This is just a simple idea which occured to me…
Suppose one looks at our industrial society as a simple control system in equilibrium then at any given time there are both positive and negative feed-back loops at play.
The bulk of the negative feed-back loops are the result of the natural laws of thermo dynamics in combination with biological systems. I.e. without maintanance things just get overgrown… And of cource there is gravity and lots of waste…

On the other hand there are positive feed-back loops. These are mostly being fed by the input of large amounts of energy in the form of carbon energy source; oil, gas and coal.
In order to keep positive ‘growth’ going and/or maintain equilibrium more and more energy is required (exponential function!)
The finite character of the energy sources at play however dictates that growth c.q. equilibrium can not be maintained. At some point the ‘natural’ side will win. It is just a matter of time.
Also when the balance begins to slide to the natural side all kinds of parameters will reverse speeding up the whole process.
This is why the ‘downside’ of most of the energy curves (people, food etc.) are much steeper then the ‘upside’ ones.
In my opinion even the most pessimist authors are way to optimistic about the impact of Peak Oil…

Anyone uttering the phrase, ‘peak oil’ after all the times recoverable oil has been underestimated should do so very carefully. After stalling for the recession, global oil production increased a healthy 2.2% in 2010 busting the previous annual record from 2008 – peak oil has not been reached and will not for many decades (IMO). The ‘Limits of Growth’ model – isn’t that from the Club of Rome wackos that said in ’72 we’d be out of oil, natural gas, gold, copper, lead, etc. before 1992 – with some running out well before? Your argument on limits of oil and other resources simply ignore the brilliant work of Julian Simon that exposed your argument for what it is – intuitive thinking that ignores the way the economy and resources combine to *decrease* scarcity the more we use them. We have enough coal and natural gas to last many centuries – the problem with oil is not that we’re running out, but that OPEC can produce it so cheaply that the price dropping to $25 a barrel haunts every investor in any project that needs $40 oil to be profitable.